Instil Bio (TIL) (~$70MM market cap) is a clinical stage biotech focused on developing tumor infiltrating lymphocyte ("TIL") therapies for the treatment of cancer. Instil was an early 2021 IPO, at the time it had a melanoma treatment, ITIL-168, that was beginning a Phase 2 clinical trial. They had ambitious dreams which included building a brand new laboratory and manufacturing facility in Tarzana, California to go along with leased manufacturing space in the UK.
ITIL-168 failed to impress and in December 2022, the company laid off 60% of their workforce and decided to put their remaining resources behind ITIL-306, a pre-clinical treatment for lung, ovarian and kidney cancers. In early 2023, the RIF was further expanded that resulted in reducing their US workforce by 96% and their UK workforce by 42%. Additionally, Instil scrapped plans to occupy the newly completed Tarzana facility. A Phase 1 study was initiated in the UK, but earlier this month Instil announced another 61% workforce reduction in the UK alongside the closing of their UK facilities and a partnership with a Chinese firm that essentially outsources further early development of ITIL-306.
Two wrinkles with this idea:
- Instil hasn't fully put itself up for sale or declared strategic alternatives, while they have essentially laid off everyone in a series of RIFs, as far as I can tell Instil hasn't hired advisors to run a formal process at this point.
- Instil owns a 128,000 square foot, brand new, never occupied facility (18408 West Onxard St) in Tarzana, California that they've put up for lease or sale. In the third quarter, they marked down the value of the facility to $132.5MM and have an $82.4MM mortgage loan out against it that matures in July 2027.
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| Note: TIL did a 1-for-20 reverse split in December, some data providers have the old share count. |
Here is the new building... https://www.loopnet.ca/Listing/18408-18412-W-Oxnard-St-Tarzana-CA/29240569/
ReplyDeletehttps://www.loopnet.ca/Listing/18408-18412-W-Oxnard-St-Tarzana-CA/29240569/
DeleteThanks, yeah I probably should have linked to it. Looks like nice from the outside, but probably a challenging time to sell.
Deletestill under construction
ReplyDeleteIs it? In the 9/30 10-Q:
Delete"Tarzana, California land and building (the “Property”) which is substantially complete and is waiting for final certificate of occupancy from the city of Los Angeles"
"Tarzana, California land and building, which is partially complete and expected to reach full completion before the end of 2023"
6/30 10-Q:
"Company’s clinical manufacturing facility in Tarzana, California. The building was placed into service and ready for its intended use as of June 30, 2022"
It can't be too far from completion.
How did you come up with those cash burn estimates of $20m and $50m, any help from the company?
ReplyDeleteAlso, one would want the view from local brokers to understand what the unleased facility is worth - without being over the top, that could be a zero depending on space demand / alternative use - or, it could be worth book value if the asset is solid. Point is, the range of outcomes for a specialised, unoccupied asset like this is very wide.
Just extrapolating Q3 burn rate and the further workforce reductions. Like all of these, it is a bit more art than science as management tends to not provide cash burn guidance once they wave the white flag on development.
DeleteSomeone on Twitter thinks, based on comparable recent sales in the area, the facilities will be worth ~$170m. Will see, and got to find a buyer first. But big upside possible vs what's currently priced in by market.
ReplyDelete$1,500 per SF seems like the most fantastical price possible, got a link so we can checkout this chuckleheads reasoning?
DeleteSeems like the chucklehead wasn't far off
DeleteLove this idea. Only thing that gives me some pause here is Curative and Bronson Crouch. What were these guys doing funding this large RE development before having a single commercialized product lol. Anyone have any insight into Curative/Crouch beyond TIL? Is TIL an outlier or do they generally have a poor track record? Additionally, can anyone confirm the building is still listed for sale? I note the Real Deal article from August says it was listed for sale, as well as lease in the alternative, but I am only seeing the lease listing on Loopnet, which might suggest they had no success marketing it for sale and pulled it off the market for now.
ReplyDeletenvm this listing notes it is also up for sale https://www.loopnet.com/Listing/Instil-Bio-18408-18412-W-Oxnard-Street/29231725/
DeleteIf the property is foreclosed, the proformanav drops by about 40 million or $16 per share, right?Which is still a good upside.
ReplyDeleteNice writeup, thanks. Have you looked at/been able to find anything on how much of the Venture Fund the CEO owns and/or how material this is to him personally (from a financial pov)? My anecdotal observations is that these broken bios has worked out a lot better when either insiders (CYT, TALS, etc) or activists (Tang, BML) have been involved/had a lot at stake. Tried some quick googling but no luck yet
ReplyDeleteAs of the April 23 proxy, Crouch (CEO) owns 35%, mostly through Curative.
DeleteIs that number "net" of what others may own in Curative? Or is he the sole owner there?
DeleteI think you have Two blog themes: Clark Street Value and Strategic Alternatives. I think all these biotech entries and Sirius XM types should be in the Strategic Alternatives blog. Unless you feel these truly are value positions you are taking.
ReplyDelete??
DeleteI think all fall under some flavor of special-sits./event-driven story. How are these not value positions if there's a clear value gap in the thesis?
Thanks for the feedback. I agree with the above comment. I've come to the view that event driven investing is kind of a pure version of value investing, we're trying to determine private market value and if there's a transaction of some kind, you're getting pretty immediate feedback if you're right or not. The feedback loops are much shorter and you can actually refine your approach much more nimbly than other value strategies. Liquidations might be the ultimate value investing, you buy and then wait as the company sells everything off, if the assets were worth more than expected, you earn alpha.
DeleteThere is no purer form of value investing than special situations.
DeleteWhich is the Strategic Alternatives Blog?
DeleteI would be surprised if this property is worth $132.5m (~$1,050 PSF) in today's life sciences market. Can look at some of Alexandria or Healthpeak's recent deals to get a sense of the valuation of really good quality lab space in the best markets, which the San Fernando Valley is not. Values in that range ($1,000+ PSF) have been for properties in best markets (Torrey Pines, South SF, Cambridge), with long in-place leases to investment grade pharma cos for the most part. Cap rates have been in the mid 5% cap rate and up territory, which would imply needing to achieving NNN rents of at least $50 PSF for this asset. This compares to industrial NNN rents of ~$20 PSF and office rents of ~$40 PSF in Tarzana / West San Fernando Valley.
ReplyDeleteWith debt of ~$650 PSF and what looks like it could be an overbuilt / specialized facility (all the bells and whistles rather than a purely functional and adaptable "box"), not sure I would count on much equity value in the property.
Thanks - appreciate you looking at closely, know you have more expertise than me.
DeleteThat analysis all makes sense to me, but can the company's own fair market accounting as of Q3 really be that divorced from reality?
Deletebe happy with the land and building bones for $25M
Delete100% agree with RAV. $1,000/SF is off the charts for an unleased, specialty asset in this location. Now the question is did they guaranty the $650/SF mortgage.
DeleteIt does seem rich, thanks, appreciate the pushback.
DeleteThey fully guaranteed the mortage, so they can't walk away from the building if its underwater.
DeleteWhen they signed off on building the facility, they probably took into account how easily it would be to unload if there reason for needing it went south.
ReplyDeleteThat was back when interest rates were near zero and selling properties was much easier, as were prices.
DeleteI can't find anything in the jan 16 release that documents how many employees were laid off or its cost, can someone point me to that? There is obvious value here. My big problem is management. They have a terrible record of capital allocation, wasting money building their own facilities, etc. They are still pursuing drug research, and doing reverse split to keep their listing. There are no and can be no activists or large shareholders who can convince them to sell or liquidate.
ReplyDeleteThis is from the 1/16 8-K:
DeleteOn January 14, 2024, the Board of Directors of Instil Bio, Inc. (the “Company”) approved a restructuring plan (the “Plan”) to effect the closure of its Manchester, UK manufacturing and clinical trial operations, thereby reducing its UK workforce by approximately 61%. This workforce reduction is expected to be substantially completed by the first half of 2024. As a result of the foregoing, the Company no longer expects to report clinical data from the ITIL-306-202 clinical trial in 2024.
Thanks, for some reason I could only see the press release which didn't contain this detail. Something is messed up with Edgar today as it won't show me contents for any filings.
DeleteThe loan is covered by minimum cash requirement. Would imagine they need to get out of the property before they can do anything? Look at the LA sales $ psf and rental rates. Talk about running before you learn to walk
ReplyDeleteso realistically what's the real estate worth?
ReplyDeleteEnjoyed this write-up, I've been following this name pretty closely for a while now, and thought I'd follow up after they filed their recent 10K this past Friday.
ReplyDeleteFrom the 10K:
"Our Strategy
Our goal is to leverage our business development capabilities to in-license/acquire and develop a pipeline of novel therapies. In order to achieve this goal, our strategy involves the following elements:
•In-license/acquire therapeutic assets. We intend to leverage our network of deep industry relationships and competitive intelligence to identify novel therapeutics that may be available for us to license or acquire on commercially attractive terms for development globally.
•Advance development of FRα CoStAR-TIL with our Collaborator. We intend, if our early-stage collaboration activities are successful, to consider developing FRα CoStAR-TIL in the United States."
Wondering if you have any thoughts on the language, specifically in their newly stated intent to in-license/acquire therapeutic assets? Seems to me to be a bit concerning, but I also would expect the stock to be down more if shareholders considered this a genuine possibility. Curious if you have any thoughts.
Yes, that language is a little concerning, reminds me of what happened at QNCE where the in place team made an acquisition and continued in charge of the company. At least in a reverse merger deal, new management comes in.
DeleteTheir verbiage also looks like maybe they prefer to lease out the Tarzana facility instead of selling it, probably not how someone who sees liquidating as a likely path would go about it.
DeleteIf it's leased it might be easier to sell? They did treat one person with previous Co-Star. Wonder how that patient is doing. They could offload the cancer for a future payment and then find something closer to the finish line which just needs a bit of cash. As someone mentioned they probably thought they could offload the real estate when they began development. Market has changed since 2021/22 but things have a way of swinging back eventually.
ReplyDeleteBML 13f out. Good news
ReplyDeletehttps://www.sec.gov/Archives/edgar/data/1789769/000178976924000075/0001789769-24-000075-index.htm
ReplyDeleteThey did manage to lease their real estate
Looks like a pretty good deal to get over the line, no? Valuation appears insane.
ReplyDeleteSolid lease.
ReplyDeletewhich would value the property $75 to $100m, assuming 7 to 10% cap rate. So they would probably get very little after paying the mortgage if they sell the property
ReplyDeleteAre cap rates 10% now? I thought I still see sales in the 7% range.
DeleteLease has rent increases not to mention what will likely be significant upgrades by the user. Could be $125-150M and the adjacent buildings look like good candidates for redevelopment as well.
ReplyDeleteMy rough math was the lease steps from 7.5mm to 11.1mm for 128.6mm undiscounted from AstraZeneca over its life and then if you assume a very conservative 500/sf residual value that's 64mm at the end = 193mm undiscounted? AstraZeneca 2031 bonds currently trade at about a 4.7% yield which make that a 124mm PV. 6% discounting gets to 111mm. Think that puts me 100-125mm value so right between you guys ha.
DeleteA lot depends on the use. Astrazeneca can plug and play acquisions like Neogene and others
ReplyDeletein the future. Good purchase by them and valuable location.
why did they do a deal here? I thought they were supposed to liquidate?
ReplyDeleteOh well.... you need motivated management to liquidate
DeleteWowza!
ReplyDeleteup another 20%
ReplyDeleteThis has more than 5x since MDC posted about it early this year. I dropped the ball on this one by selling too early despite the wide NAV gap. I’m an idiot.
DeleteUnfortunately for me, I sold out of this one a couple months ago, before this big runup. Think it was the right decision based on the facts at the time, but a tough to swallow now in hindsight.
DeleteI know that science bets aren't your thing but it might be worth wild to dip in again considering the EV gap between $SMMT and $TIL but who knows.
DeleteI sold half of my stock after they announced that they were not going to liquidate, basically. So I ended up making some pretty good money but not the 6 figures I would have if I had held.
DeleteBut the whole situation has me thinking that maybe it’s not just about buying below liquidation value. It’s about getting the pipeline for free.
maybe? but that would require you to have a science background to know if it is worth anything at all, otherwise it would be just 20k on black at the roulette table. Plus if the company gets taken out that is pretty much the CVR. Could be worth something, could be worthless. lol
Deletethe thesis has changed. it only popped because of SMMT drug results
ReplyDelete